Studies designed to understand the mechanism of competence in group H streptococci were continued. Two new relevant observations made were (i) the inhibition of genetic transformation (a measure of competence) by a naturally occurring Gram-positive cell-membrane polymer called lipoteichoic acid (LTA) and (ii) the stimulation of competence factor (CF) activity in cells by a heat (100 C) and proteinase stable component present in a number of normal sera derived from a variety of animals. LTA (1) prevented the development of competence by inactivatingCF in an unknown way, and (2) inhibited the development of competence after CF reacted with cells. (2) might reflect the inhibition of a specific competent cell-associated autolysin since it has been shown by others that LTAs and similar related compound inhibit autolytic activities in a number of bacteria. Cells treated with an elevated serum concentration (12.5 percent v/v) or exudates from boiled sera during growth were made more sensitive to CF. The nature of the serum factor(s) is unknown. In addition, cells grown in media containing high serum concentrations and then centrifuged reacted better with CF than did controls. It is possible that serum and centrifugation remove naturally occurring LTAs that inhibit CF associated reactions.